Jury convicts 3 bankers in $4 million fraud

Published: Thursday, May 8, 2014 at 2:22 p.m.

Last Modified: Thursday, May 8, 2014 at 2:22 p.m.

PANAMA CITY - A federal jury in Panama City convicted three bankers highlighted in the Herald-Tribune's “Breaking the Banks” investigative series, finding them guilty of defrauding a federally insured loan program out of nearly $4 million.

Facts

THE BANKERSTerry DuboseAge: 66Title: Chief executive officer Background: An Alabama native, Dubose was a veteran Panhandle banker who bought Coastal Community Bank and Bayside Savings Bank. He was accused by regulators and prosecutors of using the lender to enrich himself and his children even though it ultimately led to the bank's collapse.

Frank A. Baker Age: 62Title: Attorney/director Background: A Marianna lawyer and Coastal Community's second-largest shareholder, Baker was a business partner of the CEO in a questionable branch sale and signed off on disputed documents meant to fool the FDIC.

Elwood Ladon West Age: 40Title: Chief financial officer Background: Originally from Alabama, West helped negotiate a $3.75 million loan with CenterState Bank and tricked the FDIC into guaranteeing the loan in case of default.

All three were top executives at Coastal Community Bank, which was shuttered by regulators in July 2010.

Terry Dubose was the bank's chief executive. Frank Baker was the bank's attorney and second-largest shareholder, and Elwood “Woody” West served as chief financial officer.

They were each indicted last summer on 12 counts of conspiring to commit wire fraud, making false statements and filing false claims against the Federal Deposit Insurance Corp.

Now convicted, they face as long as 30 years each in federal prison. The former bankers are expected to be sentenced in July.

Coastal Community was one of 70 Florida banks that failed during the Great Recession and was featured prominently in a series of 2013 stories by the Herald-Tribune.

The newspaper found that the the bank was rife with insider deals that benefitted Dubose, his relatives, his friends and some of the bank's directors. When it failed, it cost the FDIC nearly $100 million.

Dubose, Baker and West were arrested two weeks after the Herald-Tribune published its series.

The three men's crimes involved fraud against the FDIC's Temporary Liquidity Guarantee Program, which was created at the height of the financial crisis in October 2008 to encourage banks to keep lending to each other.

Under the program, the FDIC agreed to guarantee a loan made by one financial institution to another as long as that loan was unsecured, which means there was no collateral that could be collected in the case of default.

The evidence at trial showed that Coastal Community was on the verge of defaulting on a $3 million loan to RBC Bank in October 2008 and that loan was secured by 100 percent of the stock in Coastal Community and its sister bank — Bayside Savings.

But to forestall foreclosure and save their bank, the three defendants lied to FDIC. They told the agency that the RBC loan was unsecured so they could qualify for a $3.75 million replacement loan under the FDIC's recently established program.

In June 2010, Coastal defaulted on the replacement loan and the FDIC agreed to repay it in full with interest.

“These defendants — bank officers and a bank attorney — took advantage of the Temporary Liquidity Guarantee Program, which was designed to help the country avoid financial collapse, and instead used the program to enrich themselves,” U.S. Attorney Pamela Marsh said. “Such fraud committed by bank insiders against programs designed to help our citizens will not be tolerated. Not only is such conduct a breach of trust, it is harmful to our communities and our nation.”

The case was investigated by the Federal Reserve, the Federal Bureau of Investigation, the FDIC and the Office of the Special Inspector General for the Troubled Asset Relief Program.

Attorneys for the defendants blamed confusing rules under the FDIC's loan program for their client's mistakes and said there was no evidence of a criminal conspiracy.

The jury began deliberating at about 2:30 p.m. on Wednesday and handed down their guilty verdicts later that night.

Dubose was convicted on all 12 counts. West was convicted on 11 and Baker was convicted on eight.

<p><em>PANAMA CITY</em> - A federal jury in Panama City convicted three bankers highlighted in the Herald-Tribune's “Breaking the Banks” investigative series, finding them guilty of defrauding a federally insured loan program out of nearly $4 million.</p><p>All three were top executives at Coastal Community Bank, which was shuttered by regulators in July 2010.</p><p>Terry Dubose was the bank's chief executive. Frank Baker was the bank's attorney and second-largest shareholder, and Elwood “Woody” West served as chief financial officer.</p><p>They were each indicted last summer on 12 counts of conspiring to commit wire fraud, making false statements and filing false claims against the Federal Deposit Insurance Corp.</p><p>Now convicted, they face as long as 30 years each in federal prison. The former bankers are expected to be sentenced in July.</p><p>Coastal Community was one of 70 Florida banks that failed during the Great Recession and was featured prominently in a series of 2013 stories by the Herald-Tribune.</p><p>The newspaper found that the the bank was rife with insider deals that benefitted Dubose, his relatives, his friends and some of the bank's directors. When it failed, it cost the FDIC nearly $100 million.</p><p>Dubose, Baker and West were arrested two weeks after the Herald-Tribune published its series.</p><p>The three men's crimes involved fraud against the FDIC's Temporary Liquidity Guarantee Program, which was created at the height of the financial crisis in October 2008 to encourage banks to keep lending to each other.</p><p>Under the program, the FDIC agreed to guarantee a loan made by one financial institution to another as long as that loan was unsecured, which means there was no collateral that could be collected in the case of default.</p><p>The evidence at trial showed that Coastal Community was on the verge of defaulting on a $3 million loan to RBC Bank in October 2008 and that loan was secured by 100 percent of the stock in Coastal Community and its sister bank — Bayside Savings.</p><p>But to forestall foreclosure and save their bank, the three defendants lied to FDIC. They told the agency that the RBC loan was unsecured so they could qualify for a $3.75 million replacement loan under the FDIC's recently established program.</p><p>In June 2010, Coastal defaulted on the replacement loan and the FDIC agreed to repay it in full with interest.</p><p>“These defendants — bank officers and a bank attorney — took advantage of the Temporary Liquidity Guarantee Program, which was designed to help the country avoid financial collapse, and instead used the program to enrich themselves,” U.S. Attorney Pamela Marsh said. “Such fraud committed by bank insiders against programs designed to help our citizens will not be tolerated. Not only is such conduct a breach of trust, it is harmful to our communities and our nation.”</p><p>The case was investigated by the Federal Reserve, the Federal Bureau of Investigation, the FDIC and the Office of the Special Inspector General for the Troubled Asset Relief Program.</p><p>Attorneys for the defendants blamed confusing rules under the FDIC's loan program for their client's mistakes and said there was no evidence of a criminal conspiracy.</p><p>The jury began deliberating at about 2:30 p.m. on Wednesday and handed down their guilty verdicts later that night.</p><p>Dubose was convicted on all 12 counts. West was convicted on 11 and Baker was convicted on eight.</p>